2017 (10) TMI 33 - Tri - Companies Law

Oppression and mismanagement - sale of immovable assets validation - Held that - It is evident that though petitioner was promoter member/director and was having 50% shareholding in the R1 company but entire decisions to sell off the movable and immovable assets of the company were taken without any information to the petitioner. It is also surprising that how sale deed of the fixed assets of the company was executed without petitioner s signature. It requires in-depth investigation. The entire act of disposing of the company s assets without any proper Board meeting, without any information, itself proves the act of oppression and mismanagement by the respondents against the petitioner. Though the sale of immovable assets which have been effected in the year 2008-2009 cannot be invalidated at this stage by this tribunal. But special audit of the company accounts from 8.9.2008 i.e. the date, when the possession of the company was returned to respondent no. 2 from the possession of Official Liquidator, by order of the Hon ble High Court is necessary so that after getting the report of special audit, appropriate order may be passed for distribution of assets/sale proceeds between parties. On the above basis, it is proved Respondents has committed acts of oppression and mismanagement against petitioners. This petition deserves to be allowed. It also appears that special audit and Investigation into the affairs of the R-1 company is also necessary to find out every detail of sale.

Issues Involved:
1. Alleged acts of oppression and mismanagement by the respondents.
2. Whether the sale of assets of the company and the appointment of R-3 as director are barred by limitation.
3. Legality of R-3's appointment as director.
4. Legality of the sale of the company's assets by R-2 after 2008.

Analysis:

Alleged Acts of Oppression and Mismanagement:
The petitioners alleged that the respondents engaged in several acts of oppression and mismanagement, leading to the financial crisis and eventual liquidation proceedings of the respondent company. The petitioners claimed that R-2 mismanaged the company, leading to its financial downfall and eventual declaration as a sick company under SICA. They also alleged that R-2, without proper authority and without holding valid board meetings, disposed of the company’s assets and siphoned off the funds.

The tribunal found that the petitioners, despite holding 50% shareholding, were not informed about crucial board meetings and decisions regarding the sale of the company’s assets. The tribunal noted that the alleged board meetings were not validly held as the notices were sent under a certificate of posting, which is considered a fragile kind of evidence and can be easily manipulated. The tribunal concluded that the acts of the respondents amounted to oppression and mismanagement against the petitioners.

Limitation on Sale of Assets and Appointment of R-3:
The respondents argued that the petition challenging the sale of assets and the appointment of R-3 as director was barred by limitation. They contended that the sale of assets took place in 2008-09, and the petition was filed in 2013, thus exceeding the limitation period.

The tribunal referred to Section 22 of the Limitation Act, 1963, which provides that in the case of a continuing breach of contract or tort, a fresh period of limitation begins to run at every moment during which the breach continues. The tribunal held that since the petitioners were continuously deprived of their rights as directors and shareholders, the petition was not barred by limitation.

Legality of R-3's Appointment as Director:
The petitioners challenged the appointment of R-3 as director, alleging that it was done without proper authority and without holding a valid board meeting. The respondents contended that R-3 was appointed in 1995 and that the petitioners never questioned the appointment until 2013.

The tribunal noted that the appointment of R-3 as director could not be challenged after such a long period, especially since the petitioners remained silent and did not raise any objections during the intervening years. The tribunal held that the challenge to R-3’s appointment was not maintainable after such a long delay.

Legality of the Sale of the Company's Assets:
The petitioners alleged that R-2 sold the company’s assets without proper authority and without holding valid board meetings. The respondents argued that the sale was conducted following valid board resolutions and that notices were sent to the petitioners, who chose not to attend the meetings.

The tribunal found that the notices for the board meetings were sent under a certificate of posting, which is not a reliable method of service, especially when the relationship between the parties was embittered. The tribunal held that the board meetings were not validly held, and the decisions taken in those meetings, including the sale of the company’s assets, were not valid. The tribunal concluded that the sale of the company’s assets was illegal and amounted to oppression and mismanagement.

Conclusion:
The tribunal allowed the petition, finding that the respondents committed acts of oppression and mismanagement. It ordered an investigation into the affairs of the company from the date when R-2 recovered possession from the Official Liquidator. The Central Government was directed to appoint inspectors to investigate and report within three months. The costs of the investigation were to be borne by the petitioners and reimbursed from the company’s account.

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